The Mobile Cash Crunch

Hand on mobile phoneWe love cash—literally. We love it so much that we’re willing to eschew the alternatives afforded by modern society. All these millennia into human evolution, and those crinkly, dirty pieces of paper that have passed through countless hands still have a place in our hearts and wallets, and bring a gleam to a mugger’s eye. By contrast, the credit card is so modern, an ultra-fast option that’s both convenient and safe, and helps build a financial history. But it’s not to new either. In fact, the idea goes back to at least 1887, when it gets 11 mentions in the Edward Bellamy novel “Looking Backward.” And today, 127 years later, it’s the only real alternative to the coin of the realm.

Let’s put it another way: Why haven’t mobile payments taken off?

It should be a no-brainer, since we use mobile apps for just about everything else. Apple passed the 1 million figure for the iPhone App store back in October 2013, and devices and apps exist to help us in every facet of our busy lives: shop, communicate, get healthy, get richer, get away on vacation, do our jobs, slack off, play games, and just plain kill time. Mobile banking in multiple forms has revolutionized our industry.

Yet the most fundamental form of human transaction—paying for goods and services in person—still relies on cash and credit cards. We can punch a button on the phone and get it done, more conveniently and a lot more safely. But we don’t.

It’s not as if there hasn’t been any progress. Consumers spent $235.4 billion through mobile payments in 2013. That, according to research from Gartner, represents a hefty jump over the $163.1 billion spent this way the year before. The numbers for 2014 will surely be higher still. However, the numbers are considerably lower for the United States: about $37 billion in 2013, up from $24 billion. And if even that seems big, consider this: The U.S. GDP for 2013 approached $17 trillion.

In other words, the potential for mobile payments is gigantic, and the reality is minuscule. Could it be that the technologies to support such a transformation aren’t here yet? No quite the contrary. In fact, we have a wealth of options available—and that might be the problem.

Remember, we first got to see Google Wallet exactly three years ago this month, and the expectation was that it would revolutionize basic transactions. It didn’t. More recently, we’ve had a steady stream of alternatives, from Square and Clinkle to Belly. Tech vendors and financial services have teamed up to offer joint options, such as Visa’s payWave on coming pre-loaded on Samsung Galaxy phones. Apple will presumably come up with a mobile wallet of its own at some point. Yet so far, the many ripples have not turned into a splash.

The chicken-or-the-egg question is particularly valid here. As recent reports have noted, merchants are wary of making the necessary deals and installing the technology in their stores until there’s enough of a critical mass in the public. But by the same token, most consumers can’t be bothered to download the relevant apps—even when they’re free—and go to the trouble of finding which store accepts which option.

Many other fields face similar compatibility issues, from games to stock trading, yet there’s typically more growth—a slow evolution followed by a spike. In mobile payments, despite the tremendous potential, widespread adoption has been stymied by competitive offerings.

So what’s the answer here? Should we still be waiting for a killer app from a particular vendor? Should the current technology entrants try to get together and create a common platform that enables compatibility but potentially hurts innovation? Should financial services vendors form an agreement of their own and force tech companies to go along? Should the government get involved?

We likely won’t have an answer for a while. But it’s worth noting that the time for the mobile wallet has come, and perhaps will soon be gone.


What We’re Reading: Bank Websites, Mobile Fees, Security Gaps

Below are interesting stories the staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.


  • Value-add mobile features offer potential revenue play

ABA Banking Journal

Retail banks can realize the full potential of mobile banking by offering segmented consumer experiences and advanced digital wallet capabilities, according to a study by Cognizant and Monitise. This, the study states, represents a new opportunity for retail banks to drive customer loyalty, attract new business, and generate more revenue. Tablets have emerged as a unique and valued user interface with 41% of survey respondents wanting to use tablets compared with smart phones, and 60% of tablet owners preferring a tablet for mobile banking. Feature personalization like rearranging tabs and functions is also important to more than 75% of the consumers surveyed. Offering this flexibility can give banks a competitive edge and help retain customers.

Read more

  • Whither wallets?

ABA Banking Journal

ComScore’s study earlier this year painted a pretty dismal portrait of the digital wallet future. This company specializes in measuring consumer awareness of all things digital and when it queried a lot of people about digital wallets in particular, it found that only 51% of U.S. consumers had any understanding about what digital wallets are about, with the exception of PayPal. “Digital wallets represent an innovative technology that has not yet reached critical mass among consumers due to a variety of factors, including low awareness and a muddled understanding of their benefits,” says Andrea Jacobs, payments practice leader at comScore. Again, with the exception of PayPal-of which 72% of respondents were aware and 48% of respondents had actually used-only 12% of respondents said they had used some other form of digital wallet.

Read more

  • How to Perfect Your Bank’s Website

American Banker

Up until the last decade or so, many banks and credit unions didn’t even have websites allowing consumers to access existing accounts, open new ones or apply for loans. Today, however, financial institutions not only have these sites, they are more focused on the mobile experience and creative apps that allow consumers to, for instance, deposit checks via their phones or get texts after they use an ATM. However, financial firms should make sure that their website is helping generate and retain customers before launching into more advanced mobile ventures. A website should influence customers to talk about their experience in a positive way, which helps expand a bank’s presence.

Read more

  • Why Banks Are Finally Embracing Cloud Computing

American Banker

Banks are warming to cloud computing after nearly a decade of hesitation about trusting their data to outsiders. Seventy-one percent of bank executives surveyed in a recently released report say they plan to invest more in cloud computing, nearly four times the figure a year earlier, according to PricewaterhouseCoopers. (About half of the 115 large banks surveyed around the world are based in the U.S.) One reason for this shift, according to Julien Courbe, PwC’s financial services technology leader, is that vendors of public cloud services have made their offerings to banks more secure and reliable.

Read more

  • 4 Ways Banks Can Improve Their Fraud-Fighting Efforts

Bank Systems & Technology

Today, we see threats associated with denial of service attacks, potential disruptions of sites, not necessarily intrusion onto sites. Over the years, banks have grown accustomed to the balancing act between protection and convenience. As threats change, protection measures must change, as well. Some protection measures are more transparent to the customer. Many customers use the same personal computer to conduct online banking, and their financial institutions are able to recognize the familiar computer as a method of authentication.

Read more

  • Pay for Mobile? Banks Think So; Looking for ROI

Credit Union Journal

How to make money off mobile banking? — That was the question on the minds of bankers at the recent Mobile Banking Summit here. For banks, mobile app development projects can cost $1 million to $5 million, and often boards and executive committees want to see some kind of ROI first. For banks, the obvious answer is fees. Some in the industry feel it’s reputationally risky to charge fees for mobile banking services. Some believe mobile banking initiatives pay for themselves because the channel is much lower cost than branches.

Read more

  • Surge in Mobile Banking Creates a Security Gap That’s a ‘Wild West’ for Fraudsters

Online banking has become ubiquitous as more people turn to their smartphones to carry out daily tasks. Still, while it may be more efficient, using your phone to make financial transactions could raise security risks. Portland, Ore.-based online fraud detection company iovation tracked online financial transactions across 1.5 billion devices in July and found that 20 percent were done through a mobile device or tablet. That’s an increase over the 18 percent of online financial transactions done on a mobile device between January and July of this year, and 11 percent last year, according to a statement the company released today.

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  • Global core banking market to hit $10bn in 2017


Global spending on core banking technology is set for steady, if unspectacular, growth over the next four years, breaking the $10 billion barrier in 2017, according to research from Celent. This year, around $8.6 billion will be invested by banks around the world on core systems and Celent is anticipating a four per cent rate of growth over the next few years. Breaking down the spending, maintenance is set to rise at 6.1%, compared to just 2.4% for new projects. Fiserv remains the dominant vendor in the market among small banks with less than $1 billion in assets, commanding 39% of the market, more than twice as much as nearest rival, Jack Henry & Associates. Among bigger banks, the market is more splintered, with FIS, Temenos and Misys leading the way.

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  • The $1.5B Opportunity in Mobile Banking

FOX Business

If banks want to add another $1.5 billion to their collective bottom line, they should work on promoting mobile banking opportunities and, in particular, mobile deposits. That’s according to a July report from Javelin Strategy & Research, which found that banks could see significant savings if they did more to leverage mobile banking. The report notes that not only do mobile transactions cost less to process, but that mobile customers tend to be younger and more affluent — two traits that make them desirable targets for banks: Mobile deposits can save nearly $50 per customer and better banking apps might help.

Read more


Goodbye Wallet, Hello Smartphone

With the recent onslaught of mobile payment applications, choosing credit over cash is becoming an expected method of payment. Traditional cash transactions, which are often used at a farmers’ market or to pay a dog walker or babysitter, can now be handled via mobile devices. Even large chain stores like Starbucks have a mobile payment option allowing users with a Starbucks card to simply tap their phone onto a scanner, and the money for their coffee or beverage is automatically deducted from their Starbucks account.

For mobile banking, the move from wallets to smartphones presents a shift in banking industry. Lori Ann LaRocco at CNBC recently spoke with Omar Green, Director of Strategic Mobile Initiatives at Intuit, and Brett King, author of Bank 2.0, about what this move means for the banking industry.

When Green was asked by LaRocco how he has quantified mobile banking opportunities, Green noted, “From a revenue perspective, there’s an awful lot at stake in the payments and banking fields as this new expansion of mobile financial solutions comes.”

King echoed a similar sentiment stating, “Mobile banking is part of an individual’s basic expectation of a service proposition from a bank these days… St. George Bank in Australia reports that transactions through their Mobile App exceeds that of their Top 40 branches these days….by 2015 Mobile will be the most interacted channel, day-to-day, for retail banks in the USA.”

You can read the full interview here.